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O 


ADDRESS 


ON 


INTERNATIONAL  FINANCE 
AND    TRADE 


TO  THE 


Association  of  Foreign  Press  Correspondents 
in  the  United  States 


BY 


Eugene  \  Meyer,  Jr. 

Managing  Director  of  the  War  Finance  Corporation 


NEW  YORK 
JANUARY  3,  1920 


Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

Microsoft  Corporation 


http://www.archive.org/details/addressoninternaOOmeyerich 


Hcs7 


"INTERNATIONAL  FINANCE  AND  TRADE" 

By  Eugene  Meyer.,  Jr.^ 
Managing  Director   of  the  War  Finance   Corporation. 

When  your  President  did  me  the  honor  to  invite  me 
to  address  you  on  international  finance  I  was  glad  to 
accept  his  invitation,  for  I  earnestly  believe  that  the  sub- 
ject is  assuming  a  position  second  in  importance  to  none 
of  all  the  world's  great  and  pressing  questions.  Frankly, 
I  seek  to  interest  you  in  these  matters  because  I  know 
that  if  you  are  interested  you  will  be  helpful. 

Conditions  of  trade  and  of  the  finances  that  facilitate 
it,  never  were  of  such  vital  importance  as  at  this  moment, 
for  upon  the  intelligent  understanding  of  the  facts  that 
underlie  the  present  economic  conditions  of  the  world, 
upon  the  prompt  adoption  of  the  policies  that  are  neces- 
sary to  meet  these  conditions,  and  upon  decisive  action  in 
carrying  out  those  policies,  depends,  I  believe,  the  result 
for  which  your  countries  and  ours  have  struggled  during 
the  war.  How  may  the  world  reconstruct  the  devastated 
areas  and  the  destroyed  industries,  renew  transportation 
systems,  restore  full  production  and  secure  an  adequate 
food  supply,  with  sufficient  heat  and  light  and  power,  and 
the  ordinary  comforts  of  life?  These  questions  must  have 
their  urgent  appeal  to  you  gentlemen  of  the  press.  It  is 
for  you  to  make  clear  to  all  the  peoples  the  nature  of  the 
problem,  and  to  follow  the  steps  that  may  be  taken  and 
those  that  may  be  neglected. 

In  addressing  you,  .1  speak  to  you  as  one  who  has  a 
small  part  to  play  in  this  great  and  dramatic  moment 


aA 


in  international  affairs,  but  I  desire  to  make  it  clear  that 
I  speak  only  for  myself,  and  I  shall  discuss  tonight  inter- 
national finance  especially  with  reference  to  the  rela- 
tions of  the  United  States  with  France,  England,  Italy, 
and  Belgium.  I  do  not  mean  that  our  relations  with  the 
other  countries  are  not  of  great  importance,  or  that  their 
desperate  needs  should  be  delayed  in  calling  forth  our 
sympathetic  and  prompt  consideration,  but  it  seems  to 
me,  so  far  as  strictly  commercial  matters  are  concerned, 
more  practicable  first  to  meet  the  needs  of  the  countries 
named,  and  then  at  the  right  time — and  I  hope  it  may  be 
soon — to  take  up  the  needs  of  the  others. 

A  bill  shortly  to  be  sent  to  the  Congress  is  intended  to 
cover  the  urgent  relief  requirements  in  parts  of  Europe 
where  the  suffering  is  greatest,  and  we  hope  that  the 
prompt  passing  of  this  bill  may  do  what  can  be  done  only 
as  relief.  But  my  discussion  with  you  to-night  concerns 
only  questions  of  finance  and  of  the  commerce  that  de- 
pends upon  it. 

Demoralized  exchange  markets  forced  the  attention 
of  the  thinking  world  to  the  difficulties  inherent  in  this 
situation,  which  had  been  lurking  in  the  background 
ever  since  the  day  of  the  armistice.  Various  circum- 
stances prevented  for  a  long  time  the  urgency  of  the  prob- 
lem from  making  itself  manifest.  In  Europe  the  hard- 
ships of  demobilization  during  the  winter  season,  the  dis- 
location of  industry,  and  widespread  unemployment  due 
to  cancellation  of  war  contracts,  and  the  political  and  ter- 
ritorial debates  of  the  Peace  Conference,  occupied  people's 
attention    exclusively.      In   America   we   also   had   our 


8 

period  of  industrial  confusion,  and  in  addition  to  the 
problems  of  demobilization,  we  had  the  great  task  of 
bringing  home  two  million  soldiers  from  distant  lands. 

Then,  too,  subsequent  to  the  armistice,  loans  from 
the  United  States  Treasury  to  the  extent  of  |2,365,- 
000,000  that  were  made  to  the  governments  of  the  coun- 
tries associated  with  us  in  the  war,  facilitated  a  continua- 
tion of  exports  of  supplies  which  although  purchased  for 
war  were  useful  for  peace  industries.  The  large  sums 
spent  in  Europe  to  maintain  our  armies  and  the  sales  on 
credit  of  our  stocks  of  army  supplies  also  helped  to  tide 
over  a  situation  that  has  now  become  acute.  The  value 
of  our  exports  to  England,  France,  Belgium,  and  Italy 
for  the  first  ten  months  of  1919  reached  a  grand  total  of 
13,305,000,000— against  a  figure  of  |3,043,000,000  for  the 
same  period  in  1918,  an  increase  of  |262,000,000,  although 
military  operations  were  over. 

May  I  say  here  that  almost  upon  the  very  signing  of 
the  armistice  the  directors  of  the  War  Finance  Corpora- 
tion began  the  consideration  of  the  question  which  I  am 
discussing  tonight — that  is,  how  to  help  to  finance 
foreign  trade  during  the  reconstruction  period?  It  was 
early  in  January  that  the  amendment  giving  the  War 
Finance  Corporation  power  to  extend  aid  to  our  export 
trade  for  a  period  of  five  years  was  presented  to  the 
Secretary  of  the  Treasury,  and  realizing  that  assistance 
to  foreign  trade  was  essential  to  the  situation,  he 
promptly  approved  our  recommendation.  By  this 
amendment,  which  the  Congress  passed  on  March  3, 
1919,  the  War  Finance  Corporation  was  authorized  to 
lend  to  American  exporters  and  to  American  banks  that 


finance  American  exporters  an  aggregate  of  one  billion 
dollars. 

Our  anticipations  soon  began  to  be  realized.  Begin- 
ning in  April,  1919,  the  excess  of  Europe's  imports  over 
exports  was  reflected  in  a  sharply  declining  exchange 
market.  The  pound  sterling,  which  on  March  1,  1919, 
was  quoted  at  |4.76,  is  today  |3.80.  The  quotation  for 
French  exchange  which  on  March  1,  1919,  was  5.48  francs 
to  the  dollar,  is  today  10.80  francs  to  the  dollar.  Belgian 
and  Italian  exchanges  have  likewise  declined  greatly. 

There  is  nothing  mysterious  about  international  ex- 
change, if  it  is  approached  from  a  common  sense  point  of 
view.  Goods  bought  in  a  foreign  country  can  be  settled 
for  only  by  the  sale  of  other  goods  or  of  services,  by  the 
shipment  of  gold,  the  international  medium  of  exchange, 
or  through  the  use  of  some  form  of  credit.  At  present,  as 
you  well  know,  the  buying  countries  have  not  sufficient 
goods  to  sell  in  exchange  for  those  they  wish  to  buy.  They 
have  not  enough  gold  to  settle  their  balances,  and  ade- 
quate credit  machinery  is  not  yet  in  operation. 

It  would  be  superfluous  to  discuss  the  reasons  why 
the  productive  powers  of  European  countries  on  a  scale, 
which  would  make  possible  larger  exports  of  goods,  are 
so  slow  to  recuperate,  and  the  gold  situation  is  clear — 
all  the  available  gold  in  Europe  would  not  pay  for  the 
goods  that  are  needed.  Therefore,  credit  alone  remains 
as  a  means  to  finance  the  flow  of  supplies  necessary  to 
feed  the  people  and  to  restore  their  industries. 

Let  us  now  look  at  the  credit  situation  from  the  two 
points  of  view — that  of  America,  the  seller  and  lender, 
and  that  of  Europe,  the  buyer  and  borrower. 


Assuming,  as  seems  to  be  clear  from  the  annual  report 
of  the  Secretary  of  the  Treasury,  that  credit  from  the 
United  States  Government  is  no  longer  desirable  or  ob- 
tainable, except  in  cases  of  relief,  there  are  still  avail- 
able three  forms  of  credit  from  America:  (1)  credits 
from  bankers;  (2)  credits  from  commercial  and  indus- 
trial sources;  (3)  credits  obtainable  from  the  investment 
market  in  this  country. 

Taking  the  first  form,  it  is  obvious  that  the  usual 
banking  credit  is  necessarily  a  short  term  credit,  exceed- 
ingly useful  in  financing  ordinary  transactions  of  export 
and  import,  but  totally  inadequate  to  meet  the  existing 
difficulties.  The  Edge  Law,  recently  passed  by  the  Con- 
gress and  signed  by  the  President,  is  designed  to  facili- 
tate the  creation  of  banking  institutions  to  extend  long 
term  credits  for  foreign  trade,  of  a  kind  appropriate 
under  present  circumstances. 

As  yet  it  is  uncertain  how  promptly  and  how  exten- 
sively these  institutions  may  become  effective.  At  the 
time  that  the  bill  was  presented  the  investment  markets, 
from  which  it  was  expected  funds  would  be  obtained, 
were  in  better  condition  than  at  the  present  time,  and 
the  sale  of  securities  to  large  investors  by  these  proposed 
Edge  Law  banking  corporations  is  materially  hampered 
by  the  present  high  surtaxes  on  income. 

The  President  and  the  Secretary  of  the  Treasury,  how- 
ever, have  called  the  attention  of  the  Congress  to  the 
question  of  taxation,  and  it  is  to  be  hoped  that  such 
action  may  follow  their  recommendation  as  will  open 
the  investment  markets  more  widely  to  the  financing  of 
foreign  credits. 


6 

In  the  second  class  are  the  long  credits  which  strong 
commercial  and  industrial  companies  may  be  in  a  posi- 
tion to  grant  to  their  foreign  customers  in  order  to  help 
tide  over  the  present  emergency.  Among  such  are  some 
of  the  more  important  producers  of  raw  and  semi-finished 
materials,  as  well  as  a  large  number  of  manufacturing 
corporations  supplying  goods  fundamental  to  reconstruc- 
tion. 

There  have  been  some  credits  already  granted  in  this 
form,  and  I  am  glad  to  be  able  to  tell  you  that  more  are 
being  arranged  for  now  and  in  considerable  amounts; 
some  of  the  industrial  companies  are  applying  and 
getting  their  funds  from  the  War  Finance  Corporation. 
Among  these  are  loans  for  such  fundamental  needs  of 
reconstruction  as  ^ye  million  dollars  for  agricultural 
machinery,  five  million  for  locomotives,  and  five  million 
for  electrical  machinery.  I  hope  that  at  no  distant  date 
additional  amounts  may  be  arranged  and  for  similarly 
useful  purposes. 

In  the  third  class  are  credits,  obtainable  in  the 
investment  market,  which  should  be  by  far  the  most 
important  source  of  assistance,  if  it  can  be  enlisted  on 
a  large  scale.  A  number  of  loans  in  dollars  have  been 
issued  in  this  country,  and  this  is  one  good  method 
by  which  the  American  investor  is  helping.  But  one 
method  is  not  sufficient,  and  for  some  time  I  have  been 
advocating  the  opening  of  our  public  markets,  under 
proper  safeguards,  to  the  internal  loans  of  foreign  coun- 
tries, in  addition. 

In  years  past,  when  the  United  States  needed  foreign 
capital,  Europe  bought  our  American  dollar  securities, 


and  it  was  only  as  an  exception  that  the  American  bor- 
rower was  called  upon  to  issue  obligations  in  foreign 
currencies.  The  public  markets  of  England,  France, 
Belgium,  Holland,  Germany,  and  Switzerland  took  our 
American  investments  practically  in  the  form  in  which 
we  issued  them.  In  Holland  it  was  customary  in  certain 
cases  to  issue  a  Dutch  certificate  for  the  Dutch  investor, 
but  these  were  merely  local  certificates  in  the  Dutch  lan- 
guage issued  to  represent  the  deposit  of  the  American 
certificate. 

American  investors  are  accustomed  to  certificates  that 
are  engraved  and  that  are  certified  by  responsible  trans- 
fer agents  and  registrars  for  purposes  of  protection,  and 
there  is  no  reason  why  they  should  not  get  this  protection 
by  American  bankers  and  trust  companies  issuing  local 
certificates  which  represent  the  deposited  foreign  certifi- 
cates. 

Any  dealer  in  international  securities  should  be  able 
to  buy  these  foreign  securities  in  the  open  markets  of 
Europe  and  at  a  moderate  charge  to  have  his  European 
certificate  exchanged  for  an  American  certificate,  which 
would  be  good  for  delivery  in  our  markets.  The  results 
would  be  ( 1 )  furnishing,  through  the  investment  market, 
large  aggregate  amounts  of  funds  for  financing  our  trade 
with  European  countries;  (2)  material  broadening  and 
consequent  stabilization  of  the  exchange  market,  which 
would  enable  business  men  to  make  calculations  based  on 
very  much  less  erratic  fluctuations  in  exchange  quota- 
tions; (3)  helping  the  European  markets  for  their  in- 
ternal loans  because  the  European  investors  would  have 
the  advantage  of  an  international  market,  rather  than 


8 

merely  a  national  market  for  their  own  issues;  (4)  mak- 
ing the  internal  loans  of  foreign  countries  available  as 
collateral  for  securing  shorter  or  longer  accommodation 
from  various  sources  in  America,  including  the  War 
Finance  Corporation. 

There  is  nothing  original  in  this  idea.  However,  it 
will  be  new  for  this  country  to  have  public  markets  for 
foreign  securities  in  foreign  currency  terms.  Our  posi- 
tion has  changed  from  that  of  a  debtor  nation  to  that  of 
a  creditor  nation  and  our  banking  machinery  and  our  se- 
curity markets  must  reverse  the  processes  and  the  ma- 
chinery designed  to  facilitate  business  when  we  were  bor- 
rowers of  capital.  We  must  build  up  a  new  financial 
structure  for  our  altered  commercial  relations,  and  the 
establishment  of  an  international  public  market  for  inter- 
national securities  is,  in  my  opinion,  the  most  logical, 
the  quickest,  and  the  most  important  single  step  that  can 
be  taken  now. 

I  have  emphasized  the  advantage  of  opening  our  mar- 
kets to  the  internal  obligations  of  foreign  governments, 
but  with  proper  exemption  from  foreign  taxation,  such 
as  exists  already  in  the  case  of  some  of  the  internal  loans, 
and  other  safeguards  to  American  holders,  the  prime 
municipal  and  industrial  securities  of  the  borrowing 
countries  would  quickly  and  logically  follow. 

Coming  now  to  the  European  countries,  the  buyers 
and  borrowers,  let  us  consider  for  a  moment  what  they 
can  do  to  cooperate  with  us,  and  what  obligations  they 
can  give.  The  foreign  governments  or  municipalities 
may  be  the  borrowers,  the  bankers  of  Europe  may  be 
the  borrowers  for  the  shorter  periods,  and  commercial 


and  industrial  organizations  may  borrow  for  shorter 
or  longer  periods.  Or  combinations  of  any  of  these 
may  act  together.  By  this  I  mean,  for  example,  that  in- 
dustries may  create  combined  obligations  so  strong  as  to 
be  satisfactory  to  the  American  sellers  and  lenders,  or 
these  obligations  may,  to  some  extent,  be  guaranteed  by 
their  bankers  or  their  governments. 

In  addition  to  the  above,  there  is  the  opportunity  to 
sell  in  our  markets  investments  held  in  outside  coun- 
tries by  the  country  that  desires  to  increase  its  fund  of 
dollar  exchange.  And  as  some  of  the  countries  we  are 
discussing  hold  large  amounts  of  such  investments  in 
other  lands  than  their  own,  this  form  of  financing  may 
help  materially. 

Stated  in  general  terms,  gentlemen,  these  are  the  pos- 
sible solutions.  I  do  not  think  that  there  are  any  others. 
We  and  the  European  borrowers  will  have  to  study  the 
facts  of  the  situation  and  determine  which  of  these  vari- 
ous methods  seem  expedient  in  each  of  the  countries  and 
to  what  extent. 

May  I  now  say  a  word  with  regard  to  the  attitude  on 
both  side  of  the  water?  In  June,  moved  by  a  vision  of 
impending  economic  impasse,  I  visited  France  and  Eng- 
land, and  conferred  with  some  of  the  leading  bankers  and 
Government  officials,  and  with  some  of  the  representa- 
tives of  Belgium  and  Italy  assembled  in  Paris.  No  defi- 
nite plans  appeared  to  have  been  formulated  by  the  bor- 
rowing countries  to  meet  the  difficulties  in  international 
trade  which  all  agreed  were  bound  to  arise  with  the 
cessation  of  loans  from  the  United  States  Government. 
Europe's  easy  method  of  covering  purchases  made  in 


10 

America  by  loans  from  the  United  States  Government 
seemed  to  have  brought  about  a  state  of  mind  which 
made  it  difficult  to  conceive  of  other  methods,  yet  ob- 
viously at  some  time  other  ways  would  have  to  be  found. 

Today  in  Europe  the  problem  is  fully  recognized.  The 
recent  visits  of  the  economic  missions  of  England, 
France,  Belgium,  and  Italy  indicate  great  interest  in 
considering  what  may  be  done.  But,  to  speak  frankly, 
I  feel  that  too  much  time  is  being  lost.  The  situation 
needs  the  clear  grasp  of  facts,  the  concise  definition  of 
purpose  and  the  courage  and  decision  to  take  the  neces- 
sary steps  to  bring  about  satisfactory  conclusions.  Yet  I 
have  faith  and  believe  that  the  great  problems  of  peace 
and  reconstruction  must  command  in  every  country  such 
leadership  as  Clemenceau,  brought  to  the  war  problems 
of  France. 

I  do  not  believe  it  possible  that  the  leaders  of 
government  and  finance  in  these  same  countries,  who 
stood  the  terrific  strains  for  so  long  a  period,  who  had  the 
dogged  determination  to  carry  on  over  every  obstacle, 
the  unflinching  will  to  surmount  every  reverse,  will  now 
yield  to  the  difficulties  of  peace,  which  are  great,  it  is 
true,  but  which  are  inconceivably  small  compared  with 
the  tremendous  efforts  of  war. 

In  this  country,  apart  from  a  few  extremists,  I  be- 
lieve that  our  people  approach  the  subject  realizing  that 
we  are,  as  never  before,  a  nation  among  nations,  with 
our  part  to  play  in  world  affairs.  They  realize  that  every 
force  of  nature  is  driving  us  outward  to  take  our  place 
in  international  relations — commercial,  financial,  and 
political — that  we  cannot  reverse  the  process  if  we 
would,  and  that  we  should  not  if  we  could. 


n 

I  believe  that  the  great  body  of  American  citizens  ap- 
proach the  problem  of  international  trade  and  finance 
with  a  strong  sense  of  responsibility  to  the  rest  of  the 
world.  They  desire  to  do  their  part  at  this  time  of  recon- 
struction, as  they  desired  to  do  their  part  in  war.  They 
are  not  motivated  by  greed  or  by  dreams  of  economic 
domination,  nor  do  I  believe  that  they  regard  the  situa- 
tion as  of  a  purely  sentimental  character.  They  approach 
it  in  all  seriousness  as  a  problem  in  which  a  heavy  obli- 
gation rests  on  the  American  business  man  and  the 
American  banker,  and  they  are  ready  and  willing,  nay 
even  anxious,  to  live  up  to  the  rightful  expectations  of  a 
watchful  world. 

When  I  addressed  the  Finance  Committee  of  the 
Senate  in  February  of  last  year  on  the  subject  of  an 
amendment  to  the  War  Finance  Corporation  Act,  I 
stated  that  "a  prompt  restoration  of  international  trade 
will  enable  Europe  to  restore  its  industry  and  employ- 
ment of  labor,  and  thus  to  hasten  its  political  and 
social  peace.  Unemployment  and  hunger  are  the  surest 
sources  of  social  disorder.  In  extending  credits  at 
this  time  to  foreign  countries  to  enable  our  industries 
and  theirs  to  resume  normal  activity  promptly,  I  believe 
we  would  be  making  a  most  important  contribution  to- 
ward international  peace  and  prosperity,  and  that  the 
results  arising  would  benefit  alike  the  country  extending 
the  credits  and  the  countries  which  received  them",  and, 
gentlemen,  I  cherish  the  idea  that  this  is  the  attitude  of 
the  country. 

In  considering  Europe's  needs,  do  not  forget  that 
there  is  work  to  be  done  in  America:  goods  are  in  de- 
mand;   materials,    labor    and    capital    are    needed    in 


12 

amounts  so  great  as  to  make  it  appear  almost  impossible 
to  meet  the  foreign  as  well  as  the  domestic  requirements. 
A  report  of  the  Department  of  Agriculture  states  that 
road  work  amounting  to  $633,000,000  is  required.  An 
investigation  by  the  Department  of  Labor  shows  that 
building  construction  work  to  a  total  of  |1,750,000,000 
was  deferred  during  the  war  and  that  only  a  small  part 
of  this  has  been  started.  Steam  railroad  systems  of 
the  country,  at  a  conservative  estimate,  could  use 
$2,000,000,000  as  soon  as  the  funds  are  obtainable. 
Electric  railway  construction  has  been  at  a  standstill, 
and  power  plants  and  other  fundamental  needs  of  our 
industrial  life  are  waiting  everywhere  for  a  supply  of 
capital,  labor,  and  material  to  allow  essential  develop- 
ment. The  construction  needs  of  our  rapidly  growing 
population  compete  in  urgency  with  the  reconstruction 
requirements  of  Europe. 

Now,  gentlemen,  if  the  people,  the  industries,  and  the 
bankers  of  Europe,  on  the  one  hand,  and  the  people,  the 
industries,  and  the  bankers  of  America,  on  the  other  hand, 
know  the  problem,  and  if,  as  I  believe,  the  possible  solu- 
tions are  clearly  defined — and  they  comprise  only  a  small 
range  of  possibilities — then  there  is  needed  only  a  decision 
with  regard  to  the  policies  that  are  necessary  and  the 
energy  to  put  them  into  effect. 

In  great  crises  the  weakness  of  human  institutions  is 
in  the  delay  in  making  the  adjustments  necessary  to  meet 
new  conditions.  The  question  today  is  whether  we  shall 
do  the  necessary  things  with  sufficient  promptness  or 
whether  it  will  be  once  more  "too  late'\ 

January  3,  1920. 


C7244 


Manu/actuted  bu 

GAYLORD  BROS.  Inc. 

Syracuse,  N.  Y. 

Stockton,  Calif. 


T.U 


i'1S 


